Income Distribution

Economics

Study Guide

Terms

Terms

Terms Terms

Buyer

Someone who purchases goods and services from a seller for money.
Competition

In a market economy, competition occurs between large numbers of buyers and sellers who vie for the opportunity to buy or sell goods and services. The competition among buyers means that prices will never fall very low, and the competition among sellers means that prices will never rise very high. This is only true if there are so many buyers and sellers that none of them has a significant impact on the market equilibrium.
Equilibrium Price

The price of a good or service at which quantity supplied is equal to quantity demanded. Also called the market-clearing price.
Gini Coefficient

Numerical measurement between 0 and 1 of income equality; calculated by dividing the area between the Lorenz curve and the equal distribution curve by the area beneath the equal distribution curve.
Goods and Services

Products or work that are bought and sold. In a market economy, competition among buyers and sellers sets the market equilibrium, determining the price and the quantity sold.
Income Distribution

Refers to how evenly the total amount of income in an economy is divided between members of the workforce.
Income Mobility

Refers to the ease with which members of the workforce can move between levels of economic prosperity.
In-kind Transfer

Indirect means of redistributing income; gives low income workers goods or vouchers for goods instead of giving them direct cash payments.
Lorenz Curve

Curve that plots out the cumulative percentage of income earned by segments of the workforce, as compared to a straight-line curve that represents perfectly equal income distribution. Used to calculate the Gini coefficient.
Market-Clearing Price

The price of a good or service at which quantity supplied is equal to quantity demanded. Also called the equilibrium price.
Market Economy

An economy in which the prices and distribution of goods and services are determined by the interaction of large numbers of buyers and sellers who have no significant individual impact on prices or quantities.
Market Equilibrium

Point at which quantity supplied and quantity demanded are equal, and prices are market-clearing prices, leaving no surplus or shortage.
Seller

Someone who sells goods and services to a buyer for money.
Shortage

Situation in which the quantity demanded exceeds the quantity supplied for a good or service; price is below equilibrium price.
Surplus

Situation in which the quantity supplied exceeds the quantity demanded for a good or service; price is above equilibrium price.

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